[Federal Register Volume 77, Number 120 (Thursday, June 21, 2012)]
[Notices]
[Pages 37456-37458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-15125]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67207; File No. SR-CME-2012-21]


Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Amend CME Rule 971 Reporting Requirements for FCM 
Clearing Members

June 15, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 7, 2012, the Chicago Mercantile Exchange Inc. (``CME'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I and II below, which items 
have been prepared primarily by CME. The Commission is publishing this 
Notice and Order to solicit comments on the proposed rule change from 
interested persons and to approve the proposed rule change on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of Terms of Substance of 
the Proposed Rule Change

    CME proposes amendments to certain reporting requirements for 
futures commission merchant (``FCM'') clearing members. The enhanced 
reporting requirements are designed to further safeguard customer funds 
held at the FCM level. The text of the proposed changes is as follows 
with additions italicized and deletions in brackets.
* * * * *
Rule 100--Rule 970--No Change
* * * * *
    CME Rule 971. SEGREGATION, SECURED AND SEQUESTERED REQUIREMENTS
    A. All clearing members must comply with the requirements set forth 
in CFTC Regulations 1.20 through 1.30, 1.32, and 30.7, and CME Rules 
8F100 through 8F136. This includes, but is not limited to, the 
following:
    1. Maintaining sufficient funds at all times in segregation [or set 
aside in separate or], secured 30.7 and sequestered accounts;
    2. Computing, recording and reporting completely and accurately the 
balances in the:
    a. Statement of Segregation Requirements and Funds in Segregation;
    b. Statement of Secured Amounts and Funds Held in Separate 
Accounts; and
    c. Statement of Sequestration Requirements and Funds Held in 
Sequestered Accounts.
    3. Obtaining satisfactory segregation, [separate] secured 30.7 and 
sequestered account acknowledgement letters and identifying segregated, 
[separate] secured 30.7 and sequestered accounts as such; and
    4. Preparing complete and materially accurate daily segregation, 
secured 30.7 and sequestered amount computations in a timely manner.
    B. [Exchange staff may prescribe additional segregation, secured 
and sequestered amount requirements.] All FCM clearing members must 
submit a daily segregated, secured 30.7 and sequestered amount 
statement, as applicable, through Exchange-approved electronic 
transmissions by 12:00 noon on the following business day.
    C. [All clearing members must provide written notice to the Audit 
Department of a failure to maintain sufficient funds in segregation or 
set-aside in separate or sequestered accounts. The Audit Department 
must receive immediate written notification when a clearing member 
knows or should have known of such failure.] All FCM clearing members 
must submit a report of investments in a manner as prescribed through 
Exchange-approved electronic transmissions as of the 15th of the month 
(or the following business day if the 15th is a holiday or weekend) and 
last business day of the month by the close of business on the 
following business day. The report of investments shall be prepared and 
shall identify separately for segregated, secured 30.7 and sequestered 
funds held:
    1. The dollar amount of funds held in cash and each permitted 
investment identified in CFTC Regulation 1.25(a); and
    2. The identity of each depository holding funds and the dollar 
amount held at each depository.
    D. All disbursements not made for the benefit of a customer from a 
segregated, secured 30.7 or sequestered account which exceed 25% of the 
FCM clearing members excess segregated, secured 30.7 or sequestered of 
the respective origin must be pre-approved in writing by the clearing 
member's Chief Executive Officer or Chief Financial Officer.
    1. In determining if a disbursement exceeds the 25% level, such 
disbursement must be:
    a. Compared to the most recent calculation of excess segregated, 
secured 30.7 and sequestered amounts; and
    b. A single disbursement must be reviewed individually and in the 
aggregated with all other disbursements not made for the benefit of a 
customer of the respective segregated, secured 30.7 or sequestered 
origin since the last calculation of excess funds.
    2. Upon approval of a single disbursement or the disbursement which 
in the aggregated exceeds the 25% level as defined in Rule 971.D.1., 
the FCM clearing member must provide immediate notification to the 
Audit Department through Exchange-approved electronic transmissions. 
Such notification shall include:
    a. Confirmation that the FCM clearing member's Chief Executive 
Officer or Chief Financial Officer pre-approved in writing the 
disbursement(s);
    b. The amount(s) and recipient(s) of such disbursement(s); and

[[Page 37457]]

    c. A description of the reasons for the single or multiple 
transaction(s) that resulted in the disbursement(s).
    E. All clearing members must provide written notice to the Audit 
Department of a failure to maintain sufficient funds in segregation, 
secured 30.7 or sequestered accounts. The Audit Department must receive 
immediate written notification when a clearing member knows or should 
have known of such failure.
    F. Each statement and report filing required under this Rule must 
be submitted by the Chief Executive Officer, Chief Financial Officer or 
their authorized representative as approved by CME using their assigned 
User Identification (``User ID''). The User ID will constitute and 
become a substitute for the manual signature of the authorized signer 
to the electronically submitted daily segregated, secured 30.7 and 
sequestered amount statements. The User ID is a representation by the 
authorized signer that, to the best of his or her knowledge, all 
information contained in the statement being transmitted under the User 
ID is true, correct and complete. The unauthorized use of a User ID for 
electronic attestation by an unauthorized party is expressly 
prohibited.
    G. Exchange staff may prescribe additional segregation, secured 
30.7 and sequestered amount requirements.
* * * * *
Rule 972--End--No Change

II. Self-Regulatory Organization's Statement of Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CME included statements 
concerning the purpose and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. CME has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    CME is registered as a derivatives clearing organization with the 
Commodity Futures Trading Commission (''CFTC'') and operates a 
substantial business clearing futures and swaps contracts subject to 
the jurisdiction of the CFTC. CME proposes to amend CME Rule 971 to 
impose additional reporting requirements for FCM clearing members that 
are designed to further safeguard customer funds held at the FCM level.
    The proposed rule changes are being made in connection with certain 
recommendations developed by CME, the National Futures Association and 
the Futures Industry Association. The changes to the text of CME Rule 
971 that are the subject of this filing can be summarized as follows:
     Maintenance of Excess Segregated, Secured 30.7 and 
Sequestered Funds. Revised Rule 971.A.1 clarifies that FCM clearing 
members must maintain excess segregated, secured 30.7 and 
``sequestered'' (i.e., customer cleared swaps) funds at all times, 
including on an intra-day basis.
     Daily Segregated, Secured 30.7 and Sequestered Statements. 
Subparts B and F of revised Rule 971 require FCM clearing members to 
file daily segregated, secured 30.7 and sequestered statements, as 
applicable, through WinJammer, by 12:00 noon on the following business 
day. These daily statements must be electronically submitted and signed 
off by the firm's Chief Executive Officer, Chief Financial Officer or 
their designated representative, as approved by CME and as authorized 
on the User Identification Request Form.
     Semi-monthly Investment Reports. Revised Rule 971.C 
requires FCM clearing members to file semi-monthly reports reflecting 
how customer segregated, secured 30.7 and sequestered funds are 
invested and where those funds are held. The reports of investments 
will be filed electronically through WinJammer as of the 15th of the 
month and last day of the month.
     Disbursement Approvals. Rule 971.D requires all 
disbursements made by FCM clearing members of customer segregated, 
secured 30.7 or sequestered funds that are not made for the benefit of 
customers of the respective customer origin and that exceed 25% of the 
excess segregated, secured 30.7 or sequestered funds, as applicable, to 
be pre-approved in writing by the FCM's Chief Executive Officer or 
Chief Financial Officer. In determining if the 25% level has been 
exceeded, all such disbursements not made for the benefit of customers 
by customer origin should be aggregated and compared to the most 
current daily segregated, secured 30.7 and sequestered calculations, as 
applicable. In addition, CME must be immediately notified upon pre-
approval of such disbursements through WinJammer notification filings, 
including a description of the nature of the disbursement(s) and 
confirmation of pre-approval.
    CME notes that it previously announced certain of the enhanced 
reporting requirements described above when it issued Audit Information 
Bulletin (``AIB'') 12-04 on April 2, 2012. The AIB was filed with the 
Commission in SR-CME-2012-13.\3\
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    \3\ The Commission approved SR-CME-2012-13 on April 26, 2012, as 
to the new reporting requirement requiring all FCM clearing members 
to file daily, segregated, secured 30.7 and ``sequestered'' (or 
customer cleared swaps) statements, as applicable, on a daily basis. 
Exchange Act Release No. 34-66867, 77 FR 26062 (May 2, 2012).
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    CME anticipates making the changes to Rule 971.C effective on July 
1, 2012. CME anticipates making the changes to Rule 971.D effective at 
some point in the July 2012 time period. The other changes to Rule 971, 
the substance of which were addressed by CME's previous filing of AIB 
12-04, are scheduled to become effective on June 14, 2012. CME also 
made a filing, CME Submission 12-178, with the CFTC with respect to the 
proposed changes.
    CME believes the proposed changes are consistent with the 
requirements of the Act. First, CME, a derivatives clearing 
organization, is implementing the proposed changes in furtherance with 
applicable CFTC regulations and Commodity Exchange Act (``CEA''), which 
contains a number of provisions that are comparable to the policies 
underlying the Act, including, for example, promoting market 
transparency for derivatives markets, promoting the prompt and accurate 
clearance of transactions and protecting investors and the public 
interest. Second, CME believes the proposed changes are specifically 
designed to protect investors and the public interest because the 
requirements help safeguard customer funds held at the FCM level.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CME does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    CME has not solicited and does not intend to solicit comments 
regarding this proposed rule change. CME has not received any 
unsolicited written comments from interested parties.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 37458]]

including whether the proposed rule change is consistent with the Act. 
Comments may be submitted by any of the following methods:
     Electronic comments may be submitted by using the 
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or send an email to [email protected]. Please include 
File No. SR-CME-2012-21 on the subject line.
     Paper comments should be sent in triplicate to Elizabeth 
M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC, 20549-1090.
    All submissions should refer to File Number SR-CME-2012-21. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of CME. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CME-2012-21 and should be 
submitted on or before July 12, 2012.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    Section 19(b) of the Act \4\ directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization. The Commission finds that the proposed rule change is 
consistent with the requirements of the Act, in particular the 
requirements of Section 17A of the Act, and the rules and regulations 
thereunder applicable to CME.\5\ Specifically, the Commission finds 
that the proposed rule change is consistent with Section 17A(b)(3)(F) 
of the Act which requires, among other things, that the rules of a 
clearing agency be designed to protect investors and the public 
interest because the proposed rule change should allow CME to better 
monitor the financial status and risk management procedures of its 
clearing members.\6\
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    \4\ 15 U.S.C. 78s(b).
    \5\ 15 U.S.C. 78q-1. In approving this proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    In its filing, CME requested that the Commission approve this 
proposed rule change on an accelerated basis for good cause shown. CME 
cites as the reason for this request CME's operation as a DCO, which is 
subject to regulation by the CFTC under the CEA. This rule change is 
being made to enhance CME's efforts to protect investors who utilize 
its clearinghouse services through its FCM clearing members.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of notice in 
the Federal Register because the proposed rule change allows CME to 
implement the additional clearing member surveillance designed 
specifically to protect investors and the public interest.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-CME-2012-21) is approved on an 
accelerated basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15125 Filed 6-20-12; 8:45 am]
BILLING CODE 8011-01-P